Bank of England Raises Rates to 4%
The Facts
- The Bank of England's (BOE) Monetary Policy Committee raised the base rate by a quarter point to 4% on Thursday, marking the first increase since August 2023. Monthly payments on a typical tracker mortgage could rise by about £31.
- The panel voted eight to one for the hike; the figure was six-to-three in September, when rates were held. Governor Andrew Bailey said this wasn't "the first in an inevitable long sequence of hikes," but it likely wouldn't be the last either.
- A Bank of England index measuring sterling against a basket of major currencies reached 86.4 this week, its joint highest since the June 2016 Brexit referendum. Sterling also rose above $1.35 against the dollar, its highest since September.
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The Spin
Government-critical narrative
Hiking borrowing costs won't drill for more oil or end a war overseas, so punishing British households for a supply shock is just cruel. The labor market is shaky, confidence is on the floor and the bite of earlier tightening is still feeding through mortgages and company refinancing. Squeezing credit now risks stalling small-business investment for nothing.
Pro-government narrative
Inflation has sat above target for most of the past five years, and waving it off as temporary again would torch what's left of the Bank's credibility. Activity has held up better than expected and the jobs picture is steadying, so one move now is hardly going to tip the economy into recession. Markets have already priced in the rises, and this latest move could calm mortgage and borrowing costs.
